Q4 2014 BOMBARDIER INC Earnings Conference Call-English
Feb 12, 2015 AM EST
BBD.B.TO - Bombardier Inc
Q4 2014 BOMBARDIER INC Earnings Conference Call-English
Feb 12, 2015 / 01:00PM GMT
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Corporate Participants
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* Shirley Chenier
Bombardier Inc. - Senior Director, IR
* Pierre Beaudoin
Bombardier Inc. - President and CEO
* Pierre Alary
Bombardier Inc. - Chief Financial Officer
* Alain Bellemare
Bombardier Inc. - President and CEO
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Conference Call Participants
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* Unidentified Participant
* Fadi Chamoun
BMO Capital Markets - Analyst
* Robert Springarn
Credit Suisse - Analyst
* David Newman
Cormark Securities - Analyst
* Kristine Liwag
Bank of America Merrill Lynch - Analyst
* Konark Gupta
Macquarie Capital - Analyst
* Noah Poponak
Goldman Sachs - Analyst
* Chris Murray
AltaCorp Capital - Analyst
* Turan Quettawala
Scotia Bank - Analyst
* David Tyerman
Canaccord Genuity - Analyst
* Peter Arment
Sterne Agee - Analyst
* Doug Karson
Bank of America Merrill Lynch - Analyst
* Walter Spracklin
RBC Capital Markets - Analyst
* David Strauss
UBS Securities - Analyst
* Stephen Trent
Citigroup Global Markets - Analyst
* Brian Jacoby
Goldman Sachs - Analyst
* Benoit Poirier
Desjardins Capital Markets - Analyst
* Deepak Kaushal
GMP Securities - Analyst
* Cameron Doerksen
National Bank Financial - Analyst
* Daniel Bordeleau
Info Aero Quebec - Analyst
* Kristine Owram
National Post - Analyst
* Jerry Siebenmark
The Wichita Eagle - Analyst
* Paul Vieira
The Wall Street Journal - Analyst
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Presentation
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Operator [1]
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(Spoken in French). Good morning, ladies and gentlemen, and welcome to the Bombardier Conference Call. Please be advised that this call is being recorded.
(Spoken in French). I would now like to turn the meeting over to Ms. Shirley Chenier, Senior Director, Investor Relations. (Spoken in French). Please go ahead, Ms. Chenier.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [2]
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Thank you, operator. (Spoken in French). Good morning, and welcome to Bombardier's --
(Interpreted) Good morning.
-- (technical difficulty) investors and financial analysts. (Spoken in French).
(Interpreted) I would also like to welcome media representatives in attendance today. You will be able to ask questions a little later in the conference call during the Q&A portion set aside for you.
I would like to offer our condolences to Joe Nadol's family, friends and colleagues. Joe died at the young age of 42 in a tragic train accident last week. He had been our analyst at JPMorgan for the past 13 years and he will be sorely missed. Our thoughts are with his family and all who worked close to him. So shortly, Mr. Pierre Beaudoin, President and Chief Executive Officer and Mr. Pierre Alary, Senior Vice President and Chief Financial Officer will discuss Bombardier's financial results for the fourth quarter and fiscal year ended December 31, 2014. And I'm pleased to say that we also have with us today Mr. Alain Bellemare, he will be on this call.
(Spoken in French). (Interpreted) This call is broadcast live on the web and is translated into French and English.
-- (technical difficulty) website at www.bombardier.com, and the webcast archive will be available in its integral version later on today. Slides for this presentation in English and French are equally available on our website. All dollar values expressed during this conference call are in US dollars unless stated otherwise.
I also wish to remind you that during the course of this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the Corporation. Several assumptions were made by Bombardier in preparing these statements, and we wish to emphasize that there are risks that actual events or results may differ materially from these statements. For additional information on such assumptions, please refer to the MD&A we released today. Please also note that I am making this cautionary statement on behalf of each speaker whose remarks today will contain forward-looking statements.
Pierre Beaudoin will now begin the presentation.
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Pierre Beaudoin, Bombardier Inc. - President and CEO [3]
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(Spoken in French). (Interpreted) Hello, and welcome to this conference call.
There's no doubt that 2014 was a year of changes. I was not happy with the performance of the Company and took the appropriate measure to strengthen profitability and the consistency of our results going forward. In Transportation, Lutz put in place a OneBT program to reduce risk and improve execution going forward. He is making good progress in implementing this major change and we will start seeing improved results and more consistency over the next few years.
At Aerospace, we now have three business segments; Business Aircraft, Commercial Aircraft, and Aerostructure and Engineering Services. This new structure has already empowered the leadership team, made us more agile and facilitates faster decision making. I chose to establish an Aerostructure and Engineering Service segment, as I believe there is a great opportunity to create value by attracting more revenue from our investment in component manufacturing. This segment already produced many parts for our internal use and we would now put more emphasis in developing external opportunities.
We accomplished a lot in 2014. We've reached significant milestone in our development programs such as the assembly of the Global 7000 first FTV, which is progressing well. The CSeries flight test program has made tremendous progress and, as we speak, has logged close to 1,000 flight hours. Performance of the aircraft is meeting or exceeding our expectations.
On the Transportation side, after completing the mandatory 600,000 kilometer test run, the ZEFIRO 380 very high speed train has been homologated and the first delivery will occur in the next few weeks. This progress shows how close we are to seeing the potential of these new products, the basis of our growth story for the years to come.
Transportation also had an excellent year on order front, with key passenger rail contracts such as London Crossrail in the State of Queensland in Australia where bulk orders are combined with long-term service contracts. All this translate into a very strong backlog of more than $69 billion, which gives us great visibility on revenue for the next three years.
And today I'm announcing a new leadership team. Alain Bellemare is appointed President and Chief Executive Officer of Bombardier, and I will take the role of Executive Chairman of the Board effective tomorrow. So this morning, I would like to welcome Alain to our team. Many of you already know, Alain is an experienced executive, who acquired a deep knowledge of manufacturing sectors, while assuming leadership position in various (technical difficulty). Throughout his 18-year career at UTC, notably at Pratt & Whitney, he displayed exceptional management skills with a clear focus on profitability. I am convinced that Alain will bring our Company to the next level.
In addition to our strong liquidity position of $3.8 billion at year-end, we are announcing today a financing plan to position us with a flexible and strong financial profile for the long term. This plan includes raising equity for approximately $600 million as well as up to $1.5 billion in new debt. The Board also decided to suspend the dividend payment on the common share until further notice. And to complement this financial plan, we will explore other initiatives such as the potential participation in industry consolidation in order to deleverage the Company. We have one overriding objective at Bombardier, to become a true high performance organization with improved margin and better execution. We are determined and focused on delivering.
And now, before opening to questions, I will let Pierre Alary walk you through the results for the fourth quarter.
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [4]
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Thank you, Pierre. Bonjour. Morning. [Both groups] are reporting increased revenue (technical difficulty).
(Interpreted) Good morning.
Revenues for the fourth quarter totaled $6 billion compared to $5.3 billion last year. This represents an increase of 16% for Aerospace and 13% for Transportation. For the full year, revenues totaled $20.1 billion, an increase of $2 billion over last year. Aerospace revenue were at $10.5 billion, 12% higher, while Transportation revenue were at $9.6 billion, an increase of 10% over last year.
The combined EBIT before special item totaled $156 million for the quarter and $923 million for the full year, compared to $186 million and $893 million last year. For the full year, Aerospace EBIT margin is at 4.2%, while Transportation is at 5.1%.
Net financing expenses for the quarter amounted to $48 million compared to $45 last year. The adjusted net income for the quarter totaled $83 million or $0.04 per share. For the full year, adjusted net income totaled $648 million or $0.35 per share, compared to $608 million or $0.33 per share last year.
Consolidated free cash flow for Q4 amounted to $590 million compared to $771 million last year. For the full year, Aerospace generated $800 million of cash flow from operating activity and invested $1.9 billion on product development. For the full year, Transportation free cash flow generation totaled $122 million. As a result, we ended the year with a cash balance of $2.5 billion.
Now looking at our retirement benefit, we have experienced a strong actual gain on plan assets of $1.1 billion, which was offset by a $1.5 billion negative impact from the reduction for the discount rates.
Looking forward, the guidance for 2015, which is now presented by business segments within the Aerospace are as follows. Starting with Business Aircraft, in terms of profitability, we expect an EBIT margin of approximately 7%, which is an improvement of approximately 1% compared to 2014. In terms of liquidity, cash flow from operating activities are expected to be between $1.0 billion and $1.4 billion, while net addition in property, plant and equipment and intangible assets are expected to be approximately $1 billion. And we expect to deliver approximately 210 business aircraft.
On the Commercial Aircraft side, we expect a negative EBIT of approximately $200 million, which includes the dilutive impact of the initial years of production of the CSeries program. In terms of liquidity, we expect a neutral cash flow from operating activity and a net investment of approximately $900 million. And we expect to deliver 80 commercial aircraft.
The Aerostructure and Engineering Services EBIT margin is expected to be approximately 4%. We expect a neutral cash flow from operating activity and net investment in property, plant and equipment of approximately $100 million. Revenues are expected to be approximately $1.8 billion.
Now for Transportation, we expect a slight improvement in EBIT margin compared to 2014. We also expect an improvement of free cash flow compared to 2014, although it is expected to remain below EBIT. In terms of revenue, excluding currency impact, we expect our revenues to be higher than 2014, with percentage growth in the low-single digits, and we expect the book-to-bill ratio to be in excess of 1.
Now, in order to position Bombardier with a flexible and strong financial profile, we are launching today a financing plan. First, from a balance sheet perspective, we intend to raise approximately $600 million in new equity. We also intend to raise up to $1.5 billion in new long-term debt, and to be in a position to access the market when conditions are favorable. We have filed today preliminary shelf prospectus.
Secondly, we have decided to suspend the dividends on Class A and Class B share. And finally, we will explore other initiatives such as certain business activity potential participation in industry consolidation in order to reduce debt.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [5]
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Thank you, Pierre. We will now start the question period for analysts and investors. In order to keep the duration of this call at a reasonable length, as usual, I would ask you to limit yourself to one question to give everyone a chance to participate. If you have any remaining questions at the end and if time permits, you can get back in queue and if not, you can contact me or Yan after this conference call. We can now start with the first question. Operator?
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Questions and Answers
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Operator [1]
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(Spoken in French). (Operator Instructions) Fadi Chamoun, BMO Capital Markets.
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Fadi Chamoun, BMO Capital Markets - Analyst [2]
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Yes, good morning. So, Pierre and Alain, maybe if you can chime in, so I mean last year you provided us with a long-term path for Bombardier at the Analyst Day, which consisted of growing the revenue from the new products and ultimately gradually reducing CapEx. Are you committed to the same path that you elaborated on last year or has this changed, or we are seeing today a potential for something different to happen in the next number of years?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [3]
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No, we're committed to the same path. Of course, there is an increase this year compared to what we had said last year and that's mainly related to the CSeries with the downtime that we had, but (technical difficulty).
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Fadi Chamoun, BMO Capital Markets - Analyst [4]
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Can you explore a little bit on the other initiatives that you commented on, like participation in consolidation. Is there specific assets in the Company that you are targeting for these kind of initiatives?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [5]
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I don't want to speculate at this time. We have many assets across the Company and there is areas for the industry consolidation we want to participate in order to continue to lead the industry.
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Fadi Chamoun, BMO Capital Markets - Analyst [6]
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Okay. Thanks.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [7]
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Thank you, Fadi.
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Operator [8]
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Robert Springarn, Credit Suisse.
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Robert Springarn, Credit Suisse - Analyst [9]
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Good morning. I have a two-part question, if I could. The first is, if you could elaborate on some of the portfolio shaping that you're thinking about and which side of the business we might see that, whether it's the BT or the BA side. And within BA, what you might do there? And then, Pierre Alary, for you just specifically if the EBIT margin for 2015 in Aerospace is around or little less than 3%, putting all the sub-businesses together and you're going to start producing CSeries the following year with a 200 basis point dilution. Am I thinking correctly to think that the margin for Aerospace in 2016 is 200 basis points lower than 3% or closer to 1%? Thank you.
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [10]
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We can answer directly your second question. The EBITDA when you see less than 3%, I don't know how you come up to that number, because when I look at the various business units within the Aerospace, if you look at it on a pro forma basis, I see if I were to do -- calculate it based on 2014 structure from what the Aerospace, we would have a similar EBIT level. That means that the EBITDA would be clearly much higher than what you refer to as (technical difficulty).
Now if you look at the current guidance 2015, when I mentioned that the Bombardier Commercial Aircraft would have negative EBIT margin of approximately $200 million, it already takes into account some of the dilution or it's mostly due to this year dilution that brings the intrinsic service of the CSeries. So you can expect to have some more as we start delivering, but there is already a proportion. So it's not (inaudible) 100% additional dilution and being (technical difficulty).
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Robert Springarn, Credit Suisse - Analyst [11]
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All right. Pierre, I was just simply going to say, I get to about $300 million in EBIT this year or $400 million in EBIT versus closer to [5] last year. So how do you reconcile that on $10 billion in sales?
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [12]
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I'm telling you that the guidance we've provided on the three individual business units, if I was to put it on the same business as last year, it would be similar EBIT as last year, we had 4.1% last year and you referred to EBITDA and your question --
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Robert Springarn, Credit Suisse - Analyst [13]
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I'm talking about EBIT and I misspoke a moment ago. So $400 million change for Business negative, $200 million for Commercial and a little less than $100 million for Aerostructure, is that's how I did my math.
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [14]
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Okay. I'm telling you that my math are right, but a similar amount as last year.
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Robert Springarn, Credit Suisse - Analyst [15]
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Got it. Thanks.
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Pierre Beaudoin, Bombardier Inc. - President and CEO [16]
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The one thing, Robert -- as you said, one thing is clear and we'll give you segmented numbers later on in the year if you could follow by segments. One thing is clear, the ramping up of the CSeries, as you said yourself, will be dilutive and this is normal for Commercial Aircraft. Especially in IFRS unit trust accounting, it's normal that we see that versus other methods of accounting for entry into service of Business Aircraft, the Commercial Aircraft, we use unit cost.
I want to get back to your question of consolidation. I said I don't want to speculate, but I'll just give you one example, I won't go any further than that. But as you have observed in the transportation industry, the two big Chinese companies CSR and CNR have merged. So as the world leader in this category, I guess, before the merger, we need to ask ourselves, how do we best position ourselves for the long term, is there a consolidation, [of course, there'd be], but that's just one example of our different business segments that we have.
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Robert Springarn, Credit Suisse - Analyst [17]
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Okay. And then just, Pierre, thank you for that color. When you talk about ramping on CSeries this year, that's a very fair point and that contributing to the negative EBIT. How many production aircraft should we expect in 2015 as you build to a certification at the end of the year?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [18]
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We're not -- in 2015?
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Robert Springarn, Credit Suisse - Analyst [19]
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You're going to build some airplane in advance of delivery, so I'm just curious on the quantity.
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Pierre Beaudoin, Bombardier Inc. - President and CEO [20]
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And, well, we look precise on the quantity, so we're doing a ramp up and function of the delivery is expected. And we don't disclose specifically production level, but we've already started producing and 2014, there's already some impact from the production, because we have to take as we know a net realizable value provision on the inventory that we build, where the first units have a lower selling price, higher unit cost. So typically the first unit that we delivered are negative and we have to take a provision on the inventory we build on the first dollars that are in excess. And we've already started, end of current year we'll have the (technical difficulty) current year 2014 and the $200 million that we refer to for Commercial Aircraft is mainly the CSeries, as also a lot (technical difficulty). So the dilution impact we already see it in 2014-2015.
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Robert Springarn, Credit Suisse - Analyst [21]
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Okay.
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [22]
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To make sure it didn't create any confusion. Our entry into service certification of the platform is planned for the second half of 2015. So it's going to be more towards the end of the second half, so that's why this is not about delivery, but it's about starting production.
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Robert Springarn, Credit Suisse - Analyst [23]
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Right. That's where it is coming from. Thank you both.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [24]
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Thank you, Rob.
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Operator [25]
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David Newman, Cormark Securities.
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David Newman, Cormark Securities - Analyst [26]
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Good morning.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [27]
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Good morning, David.
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Pierre Beaudoin, Bombardier Inc. - President and CEO [28]
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Good morning.
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David Newman, Cormark Securities - Analyst [29]
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Just, Alain, maybe early days, but any ideas that you can share with us in terms of what you're looking at in terms of profitability and free cash flows for the Company, any early ideas that you're seeing from -- I know it's pretty early, but any thoughts?
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Alain Bellemare, Bombardier Inc. - President and CEO [30]
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Well, good morning.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [31]
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A day early.
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David Newman, Cormark Securities - Analyst [32]
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Good morning.
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Alain Bellemare, Bombardier Inc. - President and CEO [33]
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It's very early, because I will officially start tomorrow.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [34]
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A day early.
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David Newman, Cormark Securities - Analyst [35]
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Well, roll your sleeves up and get out here.
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Alain Bellemare, Bombardier Inc. - President and CEO [36]
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I would say, I'm very excited to join the Company. I think it's a great organization, a very impressive product portfolio, leading edge technology and we have very strong brand. What I've seen working with Bombardier over the year, looking at Bombardier from the outside in, clearly there is talented people, they are a capable organization. We know that there is some execution challenges and Pierre has talked about that, so clearly that will be a focus and that will help us drive margin improvement moving forward.
So that will be one of the first thing that we will be focusing on, whether it's on the CSeries or on the new Global 7000, 8000. So clearly that will become a priority. And then we'll work at other options, as Pierre described, as to what is it that we can do to improve the profitability of the business moving forward, both on the Aerospace and Transportation side.
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David Newman, Cormark Securities - Analyst [37]
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Very good. And just --
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [38]
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Thank you, David.
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David Newman, Cormark Securities - Analyst [39]
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One more for Pierre Beaudoin, is the family participating pro rata in any equity issue and was there any consideration given at all to dropping the multi voting shares?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [40]
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Well, first of all, on your first part of the question, when we go forward with an equity issue, we said that's our intention, the family will participate and we'll announce that at a further date. But definitely we believe in this Company and we will participate in a significant way. Giving up the multi voting share, no consideration to that. In fact, if you look at the history of Bombardier and all the great things we've accomplished to build the size of the multinational company we have, it's a very good thing that the family has been there to invest for the long term and also be able to participate in key decisions through the year. So I think this is one of the strengths of Bombardier and we continue to support and push for the family involvement.
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David Newman, Cormark Securities - Analyst [41]
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Okay. And within -- the last one, within the equity, was there any consideration given at all to sort of a strategic equity partner, perhaps the pension fund or something along those lines?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [42]
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Well, first of all, we said that we will be raising equity when the time is right. This is something we intend to do, but we have to look at the market and, of course, we'll evaluate all of the opportunities, but we want to raise approximately $600 million of equity.
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David Tyerman, Canaccord Genuity - Analyst [43]
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Very good. Thank you.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [44]
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Thank you, David.
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Operator [45]
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Ron Epstein, Bank of America Merrill Lynch.
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Kristine Liwag, Bank of America Merrill Lynch - Analyst [46]
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Hi, good morning, it's actually Kristine Liwag calling in for Ronald this morning.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [47]
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Hi, Kristine.
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Kristine Liwag, Bank of America Merrill Lynch - Analyst [48]
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Hello. Have you ramped up production for the CSeries? Can you walk us through your expected inventory and aerospace tooling build for 2015 and also for 2016?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [49]
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When you referred to tooling, we've been ramping up tooling for quite a while already to be in a position to start production. We have started production and the production will continue to ramp up gradually and function, we expect [to sell it].
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Kristine Liwag, Bank of America Merrill Lynch - Analyst [50]
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And for inventory?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [51]
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Well, we are currently building up inventory and as we build inventory, as I mentioned earlier, for the first units we have to take a net realizable value provision that we book at the same time as we build the inventory at the proportion of what needs to be accounted for. And that is being done gradually and we'll ramp up as we progress towards (technical difficulty).
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [52]
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In our liquidity guidance, we see that the Commercial is at neutral from an operation perspective and that includes the ramp up of the CSeries. Of course, all of the other platforms also better do and then we gave you guidance on the CapEx, which is more related to the R&D or just tooling, what we call development costs.
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Kristine Liwag, Bank of America Merrill Lynch - Analyst [53]
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Great. Thank you.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [54]
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Thank you.
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Operator [55]
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Konark Gupta, Macquarie.
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Konark Gupta, Macquarie Capital - Analyst [56]
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Hi, Good morning. Before I ask my question, this is just a quick clarification. Pierre Alary, you said BA EBIT would be similar or is that BA EBIT margin would be similar in 2015 versus 2014?
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [57]
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EBIT margin.
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Konark Gupta, Macquarie Capital - Analyst [58]
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Okay. So it will be --
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Pierre Beaudoin, Bombardier Inc. - President and CEO [59]
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In Aerospace, well, on a pro forma basis, we have changed the structure. So to help you to have a sense of the guidance that we're providing, and we don't have comparative figures for the past under the new structure. That's why we're giving you an idea that the BA or if you were to add the three units under the older structure, that would be an equivalent EBIT margin.
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [60]
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And here we intend to give specific [background] by --
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Pierre Beaudoin, Bombardier Inc. - President and CEO [61]
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Well, effectively, we're currently working on doing the comparative figures, which we will provide at Bombardier.
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Konark Gupta, Macquarie Capital - Analyst [62]
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Okay, thanks. And how much is the CSeries dilution included in that?
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [63]
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Well, for 2015, $200 million.
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Konark Gupta, Macquarie Capital - Analyst [64]
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$200 million. Thank you.
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Pierre Beaudoin, Bombardier Inc. - President and CEO [65]
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The $200 million for Commercial Aircraft is mostly due to the CSeries.
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Konark Gupta, Macquarie Capital - Analyst [66]
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Okay, thanks. So just my question on the CSeries is, how much of the CapEx guidance increase for 2015 is attributed to CSeries alone? And how much dilution you expect going forward beyond 2015 from CSeries?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [67]
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If you're looking at the variants, it's mostly due to the CSeries, as we have some increase in the Business Aircraft, but also with the (inaudible) both of the variants. So it would be attributed mostly to the CSeries.
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [68]
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I just want to remind you, unfortunately we had to take a five-month downtime last year and when we look at all of this, of course, we matured the platform to those five months also. So that cost us definitely some money at that time. But since it's back in place, the CSeries is doing very well. We're just about at 1,000 hours at this point and a few weeks away from flying the CS300, so we're progressing very well.
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Konark Gupta, Macquarie Capital - Analyst [69]
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Okay. And just on the last part, how much dilution do you expect beyond 2015, either on margin or cash flow? Any sense you can provide us.
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Pierre Beaudoin, Bombardier Inc. - President and CEO [70]
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Well, on 2015, we have provided the guidance.
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [71]
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No, beyond --
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Konark Gupta, Macquarie Capital - Analyst [72]
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Beyond 2015.
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Pierre Beaudoin, Bombardier Inc. - President and CEO [73]
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Beyond 2015, no, we're -- our guidance is for the upcoming year and we're giving guidance for the first year (technical difficulty).
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Konark Gupta, Macquarie Capital - Analyst [74]
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Okay.
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [75]
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For several years though, we've been telling you that ramping up a commercial aircraft will be dilutive to the result of the Company.
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Konark Gupta, Macquarie Capital - Analyst [76]
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But we can expect, at least, beyond 2015 the dilution to increase, right, on margin and cash flow, obviously, as you ramp up CSeries?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [77]
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The answer is yes. We can expect to increase, but you have to take into consideration there's already an amount that is reflected in 2015.
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Konark Gupta, Macquarie Capital - Analyst [78]
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Okay.
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Pierre Alary, Bombardier Inc. - Chief Financial Officer [79]
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And it will depend on the volume we decide to make per year at the beginning. So that's why this is all in discussions with the various customers looking at the entry into service. But again, this is very typical of any ramp up of commercial aircraft is just that in some companies, you don't see it because they send it to balance sheet. But in unit cost accounting, you see it directly as a part of that.
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Konark Gupta, Macquarie Capital - Analyst [80]
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So you still think that three-year dilution is kind of reasonable to consider, right, like profitability should not be achieved here in less than two or three years, right?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [81]
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One way you can look at it is, typically the program on the commercial aircraft would be dilutive until you reach your expected ramp up.
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Konark Gupta, Macquarie Capital - Analyst [82]
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Okay, I see. Okay, that's all from me. Thank you, guys.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [83]
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Thank you.
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Operator [84]
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Noah Poponak, Goldman Sachs.
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Noah Poponak, Goldman Sachs - Analyst [85]
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Hi, good morning, everyone.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [86]
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Good morning, Noah.
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Noah Poponak, Goldman Sachs - Analyst [87]
------------------------------
I wanted to ask about Globals and when I'm staring at this order backlog in months of production slide, the Global's length of backlog stands out as being relatively short here and you'll be transitioning to a new product set. So I just -- I wanted if you could elaborate on how you're seeing that transition. Will you need to bring Global production down at some point? I don't know if you'd be willing to tell us what Global production you're forecasting for 2015. But any help you could provide there would be great.
------------------------------
Pierre Alary, Bombardier Inc. - Chief Financial Officer [88]
------------------------------
We don't give guidance per segment. Business Aircraft, particularly the volume is going up slightly. I want to remind you, we delivered 800 Globals, 80 last year. The platform is very popular. As you pointed out, right now we're a little bit under the targets we've set for ourselves, but it's hard to see that just after looking at a couple of quarters, I see the underlying demand and it's good for the Global. Of course, we'll adjust to market conditions, but I feel that the demand is good for the Globals. We also have to consider that we have a new platform coming shortly, as we're starting to assemble the first FTV source. We're looking at balancing this out, but I would just generally tell you that the demand for the Global looks solid at this point.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [89]
------------------------------
And maybe to remind that the -- on the graph that you're referring to, the backlog on the Global 7000 and 8000, it's effectively included.
------------------------------
Noah Poponak, Goldman Sachs - Analyst [90]
------------------------------
Right, okay. Thank you.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [91]
------------------------------
Thank you, Noah.
------------------------------
Operator [92]
------------------------------
Chris Murray, AltaCorp Capital.
------------------------------
Chris Murray, AltaCorp Capital - Analyst [93]
------------------------------
Thank you. Good morning. I wonder if you could give us some color on business jet sales. It was a little surprising that the weakness of sales in the quarter, is there something materially going on that led to some weaker sales in the quarter or is there something else that we should be thinking about?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [94]
------------------------------
No, I think this is really hard to look this quarter to quarter. Look at the backlog of Bombardier, it's twice the size of any competitor, although our competitors have also launched platforms [in development]. So I think we're in a good position. So don't read one quarter to the other, look at the overall backlog, look at the amount of orders we've accumulated through time. And also look at where we've modernized the platform like the Challenger 350. It's a very, very, strong platform. The launch of the 650 is very well accepted by our customers and the program of the Global is very popular. So I think we're in a good position.
------------------------------
Chris Murray, AltaCorp Capital - Analyst [95]
------------------------------
You believe you'll have a book-to-bill above 1 for 2015?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [96]
------------------------------
We always target a book-to-bill above 1 and first we'll work on that [with the teams].
------------------------------
Chris Murray, AltaCorp Capital - Analyst [97]
------------------------------
Thank you.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [98]
------------------------------
Thank you.
------------------------------
Operator [99]
------------------------------
Turan Quettawala, Scotia Bank.
------------------------------
Turan Quettawala, Scotia Bank - Analyst [100]
------------------------------
Yes, good morning. I guess my question is on Aerospace free cash flow guidance here for 2015. If I do the rough math here, it looks like you're assuming about $1 billion change, a positive change in working capital for the year. I know Q4 is a big, big positive. But when I look at the CSeries and the fact that you will be ramping up, there should probably be a negative change in inventory related to that. So can you just talk about what you're assuming in terms of orders and so on and so forth, and how you get into your positive working capital swing?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [101]
------------------------------
Well, typically when we (technical difficulty) -- as we ramp up on an inventory, it has an impact on the free cash flows you referred to, on the other side whereas in interest of customers. And if you look at Commercial Aircraft, (technical difficulty) it is neutral in terms of cash flow from operations and it's the first factor obviously, the increase or the ramp up that we have on the (technical difficulty).
Now on a more global basis, if we have positive working capital, it's always the element that is the interest that is being capitalized. The interest capitalized is added to the tooling, added to the spend that we anticipate. So we have to adjust on the other side on the working capital to offset accounting adjustments and that's about $300 million. So right there, if you start a $300 million positive, (technical difficulty) should like accounting in between the cash flow from operations and the net investment, for the free cash flow net [it's subtracted]. So that's the main component and the level of advances, also a contribution and other components such as advance from suppliers on various programs and also the government refundable amounts that are being paid -- or some contributors as we progress (technical difficulty).
------------------------------
Turan Quettawala, Scotia Bank - Analyst [102]
------------------------------
I see. So you're going to get something from the government this year, is that what you're saying? Sorry, Pierre.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [103]
------------------------------
It's from the original agreement.
------------------------------
Turan Quettawala, Scotia Bank - Analyst [104]
------------------------------
Amount?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [105]
------------------------------
But it's paid as we spend. So it's a percentage of -- this is in proportion of what we spend.
------------------------------
Turan Quettawala, Scotia Bank - Analyst [106]
------------------------------
Okay.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [107]
------------------------------
So it's not really significant in itself, but it's the same amount, the same original amount, but it's just the payment is in time. So it has a positive impact on (technical difficulty).
------------------------------
Turan Quettawala, Scotia Bank - Analyst [108]
------------------------------
Okay. And I guess, if I understand correctly, the $200 million on the interest capitalized, but you're saying that that has a positive impact on working capital and then obviously added back into CapEx, correct?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [109]
------------------------------
Yes. So the net free -- on the free cash flow net, there's no impact, but it impacts the whole component.
------------------------------
Turan Quettawala, Scotia Bank - Analyst [110]
------------------------------
Okay. Got it. Thank you. And then, maybe if I could ask one more quickly on the CSeries. Pierre, you always talked about the earned value on the CSeries. I think the flight test hour is going pretty well now, about 40% of the total done. Can you give us a sense of -- even if you don't share too many details, a sense of whether that earned value is ahead or behind the 40-ish% in terms of the flight test hours right now?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [111]
------------------------------
We're right on target to be able to certify it as our guidance for the second half of 2015, where we gave you a lot of detail on the -- in the website of the CSeries such as we've completed flutter tests. We've transferred the CS300 through the flight test teams getting ready to fly in the next few weeks. So I think if you go there, you'll see that there is a lot of accomplishments on the development side, and now we're getting in more and more to a certification flying of -- I feel good that we're earning the value to be certifying [that business].
------------------------------
Turan Quettawala, Scotia Bank - Analyst [112]
------------------------------
Okay. Thank you very much.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [113]
------------------------------
Thank you, Turan.
------------------------------
Operator [114]
------------------------------
David Tyerman, Canaccord Genuity.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [115]
------------------------------
Yes. I just wanted to come back to the business jet order question. You only had 129 in the year, I understand the quarterly variance, but 129 for a year, that's a lot longer period and yet you delivered 204. What exactly is going on in the business jet area. It seems to be have been weak for quite a while for you.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [116]
------------------------------
Well, I don't know why you say quite a while, but we have sized the backlog of our competitors. Last year we were well above 300, so you have to look at that over time. If you look at this year, 129 is a good number, particularly if you add it to the big backlog that we have in it and that's what I would say.
The US is definitely coming back as a strong market, which it always was in Business Aircraft. But now the economy has being doing well in the US. Of course, these areas of the world last year that were not the strongest because of a geopolitical issue. But overall, the backlog of Bombardier is very strong.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [117]
------------------------------
Okay, thank you.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [118]
------------------------------
Thank you, David.
------------------------------
Operator [119]
------------------------------
Peter Arment, Sterne Agee.
------------------------------
Peter Arment, Sterne Agee - Analyst [120]
------------------------------
Hi. Yes, good morning everyone. Welcome, Alain. Question, Pierre Alary, can you give us -- just remind us if there is any impact from the financing plan on the existing covenants or you'll need any relief on your current debt.
------------------------------
Pierre Alary, Bombardier Inc. - Chief Financial Officer [121]
------------------------------
Well, we have had discussion with our group banks and they're supportive of the plan and the support required to implement that plan.
------------------------------
Peter Arment, Sterne Agee - Analyst [122]
------------------------------
Okay. If I can just sneak in, just a last comment on the business jet environment. Pierre, have you seen any behavioral changes from the collapse in the price of fuel in terms of those aircraft that are in energy-related corporations or anything, have you seen any impact there?
------------------------------
Pierre Alary, Bombardier Inc. - Chief Financial Officer [123]
------------------------------
Overall, as we always say, business aircraft reacts strongly to good corporate profits. So the economy is doing well, customers have more money in their pockets because of the drop in fuel price. That's very good for business aircraft. So I told you the demand in the US is strong and continuing to increase. So we are getting back to what we were more used to in the pre-2008 from a -- where the market is the strongest in the US. So that's a really good point. And I think the fuel price has a lot to do with it because it gives every consumer more money in their pockets. And it's also really good for a commercial platform as the airlines are doing well, they have stronger balance sheet, they expand and for the long term (inaudible).
------------------------------
Peter Arment, Sterne Agee - Analyst [124]
------------------------------
Okay, thank you.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [125]
------------------------------
Thank you.
------------------------------
Operator [126]
------------------------------
Doug Karson, Bank of America Merrill Lynch.
------------------------------
Doug Karson, Bank of America Merrill Lynch - Analyst [127]
------------------------------
Great, thank you very much. My first question relates to the CapEx guidance on slide nine, and it looks like the Aerospace segment combined is set for about a $2 billion CapEx spend in 2015 and this was quite higher than I thought that it would be at, I kind of remember in Investor Day was a range of $1.2 billion to $1.5 billion, I'm not sure if that range has changed. And what's kind of driving the increase?
------------------------------
Pierre Alary, Bombardier Inc. - Chief Financial Officer [128]
------------------------------
The figures you quoted are correct. And the particularly $2 billion in terms of guidance for 2015, and the increase vis-a-vis what we had mentioned at Bombardier a year ago, I think the effect is mostly in relation due to the increase for the CSeries, due to the period that we couldn't fly. So there has been effectively delay. And when you look at the -- we had the issue until we had resolved and that was resolved over three months, but it took effectively four to five months in total before we've got all the engine replaced in vehicle, that's fully back in the air fully (technical difficulty), but that explained mostly the variance (inaudible).
------------------------------
Doug Karson, Bank of America Merrill Lynch - Analyst [129]
------------------------------
Okay, great. That's some timing there. I just wanted two balance sheet questions and then I'll turn it over. The potential capital raise on the debt side, would that potentially earmark on the January 2016 bonds, which are $750 million, does this plan kind of cover those bonds?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [130]
------------------------------
Well, the $1.5 billion is for general corporate purposes. Obviously, when we design our plan, we take into account that there is a bond due in January.
------------------------------
Doug Karson, Bank of America Merrill Lynch - Analyst [131]
------------------------------
Okay, that's helpful. And then you said you had kind of talked to the banks regarding the ability to issue this debt, I guess there is some differences of opinion in the market on your ability to bring in these secured debt versus unsecured debt. Is it just too early now to think about that or have you have thought about kind of what type of structure that this debt could be?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [132]
------------------------------
I guess it's too early. I guess what's important is that we (technical difficulty), there is the market, we plan to raise $1.5 billion of new long-term debt, in addition to approximately $600 million of new equity. And effectively we had the support of our bank groups and we have the capability to proceed.
------------------------------
Doug Karson, Bank of America Merrill Lynch - Analyst [133]
------------------------------
That's great. And finally, I think you said market conditions would be kind of when you would look for this window. Is this something in the next like three months, six months, nine months, give us an internal kind of target when you'd like to be in the market with these transactions?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [134]
------------------------------
Well, we also commented at the beginning that in order to be in a position to access the market when conditions are favorable, we have filed today a preliminary shelf prospectus. So under any new regulation, that means that we can start any day. So we are in a position to start and so we will be looking (inaudible) $600 million of new equity and then [we'll see] the long term.
------------------------------
Doug Karson, Bank of America Merrill Lynch - Analyst [135]
------------------------------
Great. Well, thanks a lot for the answers. And good luck with some of the changes.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [136]
------------------------------
Thank you, Doug.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [137]
------------------------------
Thank you.
------------------------------
Operator [138]
------------------------------
Walter Spracklin, RBC.
------------------------------
Walter Spracklin, RBC Capital Markets - Analyst [139]
------------------------------
Yes, thank you very much. Good morning, everyone. I guess I'll start out here just by asking the broad question from a strategic standpoint, if I were to kind of oversimplify this strategy, if you bear with me for a moment. But essentially you've got a major program, it's going to be -- you're targeting some good demand, some good cash flow generation from it. And this financing plan is the bridge to get you to that point, when you start delivering those aircraft and you have a sustainable free cash flow trend going forward. If that's the case, then I guess the next focus point will be, is there enough demand to have 100 aircraft to 120 aircraft delivered per year and you're kind of stuck at that 250 level here now.
My question is, did you get any direct indications from customers that they were concerned about the balance sheet, concerned about the liquidity level, that perhaps that was holding back some orders? And how do you approach that going -- are you going to be bringing the CSeries now to Paris? Do you see a near-term ramp? Are you close to any new orders or are we still kind of a wait and see mode when it comes to new orders for the CSeries?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [140]
------------------------------
First of all, we've always said that the target for entry into service for the ordered 300 were, in my perspective, at 243. So we are on our way to the 300 terms. It's always been a number that was a focus because it's a new platform, the airlines have yet to build confidence in the platform. It's not like just replacing models for Boeing and Airbus, it's more about establishing a new product in a new segment for us.
So I feel we're in a good position. What airlines are looking at, at this point is as the test program is advancing is really best building their confidence as a platform. We could demonstrate real performance not only on paper, but on performance with the real aircraft. So it's more about right now hardware if you want and their belief that we are making significant progress and there'll be a successful aircraft and we can demonstrate that now. So I think there's good potential for us (inaudible). But we want to get it at the right price.
------------------------------
Walter Spracklin, RBC Capital Markets - Analyst [141]
------------------------------
So will you have the aircraft in Paris, just out of curiosity?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [142]
------------------------------
Well, we're not going to pre-announce our marketing.
------------------------------
Walter Spracklin, RBC Capital Markets - Analyst [143]
------------------------------
Okay. Okay. Understood. If I could ask a question, Alain. Can you walk us through your motivations for coming over to Bombardier. I mean, what went through your mind? What was important to you? In particular, about flexibility, your own flexibility to do what you want to do at Bombardier, how comfortable do you feel that you'll be able to effect some meaningful change? Or are we looking at more of a -- bring you over as a very good executor. The strategy is in place, we don't want any changes to that strategy. We just want -- we want someone with a strong execution skill set and that's what you provide. Can you give us some motivation as to what enticed you over to Bombardier?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [144]
------------------------------
Well, thanks for asking. I mean, I served like over 18 years with UTC and leading Pratt and leading (inaudible) driving the major consolidation of Goodrich (inaudible), very successful integration as you know. It was time for me to look for a new challenge. And if you look at the opportunity here at Bombardier, it's an aerospace company. It's clearly a global leader in transportation and aviation. It's a company that I know well. I have been working with Pierre for many, many years. So when Pierre and I started to talk about the opportunity, I got to be excited about that.
I think that I can bring a lot to the organization, given my experience in aerospace, but my overall global leadership skills in a very complex global manufacturing environment, operating in high technology. And the discussion with Pierre was exactly about that. I mean, what do you expect from me and it was a very good and open discussion. And it's very clear that Pierre has got tremendous confidence in my ability to come to Bombardier and help with the transformation process. Again, it's a great organization. We have good products, and it's clear that there's some short-term challenges, but Pierre is giving me the ability to do what I need to do to make sure that we manage through these more difficult tides and continue to keep growing the Company for long-term success.
------------------------------
Walter Spracklin, RBC Capital Markets - Analyst [145]
------------------------------
Okay.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [146]
------------------------------
I just want to add, at the end it's about having the strongest team in the business. I think, between me and Alain, we'll able to address the challenge that we have in front of us and really build from where we are today and deliver on the promise that we made with this new platform. I can talk about the ZEFIRO 380 that's getting into production, I mean delivery mode in the few weeks, the CSeries, the Global 7000. So I think an executive of Alain's experience, definitely strengthens our ability to execute.
------------------------------
Walter Spracklin, RBC Capital Markets - Analyst [147]
------------------------------
Yes. Certainly his reputation is very strong in the marketplace, that's for sure. If I could ask just one other question here, when you mentioned other aspects are for sale, part of that strategy of bridging you over until you can get some cash-in from the CSeries is what you have proposed in place in the equity and the debt market, plus the cutting in the dividend sufficient in your view or do you also need to sell an asset to make that bridge?
And then if I would specifically look at what assets, if I were to look at your whole organization, I know Pierre, you had indicated BT, there is some things going on there, but are there any areas that are sacred that you would not look at when I considering -- would you consider the regional jets, would you consider Learjet, would you consider perhaps a stake of the CSeries, or is any of that off the table? Instead of giving us indication what you might sell, is there anything that is near and dear to your heart that is just not up -- not an option out of some of the things I just listed?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [148]
------------------------------
(inaudible) before Pierre infer that question, one thing I'd like to put in perspective is, you referred to a bridge on dealer cash flow on the CSeries. That financing plan is really to position Bombardier to be flexible and have a strong financial profile. It's not a question of bridge, obviously it's going to [help us] to bridge to the CSeries, that it's more of that to solidify and when we say that looking at assets, it's more in a context of participating in the consolidation, it doesn't necessarily mean we're going to shell, but we would participate in the consolidation to really begin the financing plannings to get the flexibility, strong financially, either we can participate in the consolidation and position the company stronger for the long term.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [149]
------------------------------
No, it's about positioning the company strong for the long-term. So, if I refer you to what we've been doing for the last year, a year and a half, we decided to sell Flexjet, because we didn't feel -- we felt that it was time for us to sell to every factional owner, factional business and Flexjet -- we were able to sell Flexjet. We sold our military aircraft training (technical difficulty). If there is more of that in the company, we'll look at it, but when I spoke about consolidation, it's not about selling an asset, it's about positioning our company to continue to lead in different market and if the industry is changing what we wanted to indicate this morning is we want to be part of those things, because we want to position our company to continue to lead for the long-term.
------------------------------
Walter Spracklin, RBC Capital Markets - Analyst [150]
------------------------------
Just to be clear, are you saying you could be earmarking some of the proceeds of this four potential acquisitions?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [151]
------------------------------
What I'm saying is that we would be part of consolidation in the industry, so like in transportation in the [CBR] industry leader, considering the merger of CSR and CNR what is the right move for Bombardier in the long-term.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [152]
------------------------------
Okay. Thank you very much.
------------------------------
Operator [153]
------------------------------
Darryl Genovesi, UBS Securities.
------------------------------
David Strauss, UBS Securities - Analyst [154]
------------------------------
Good morning. It's actually David Strauss.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [155]
------------------------------
Hi, David.
------------------------------
David Strauss, UBS Securities - Analyst [156]
------------------------------
Good morning. Two questions. First of all, on the CapEx side, on the business aircraft side, higher than I would have thought there. Can you talk about the progression from here to this, does this represent peak CapEx spending on the business aircraft side? And then second question for Alain. Alain, welcome. Have you had any chance to really dig into this 2015 plan? And do you implicitly endorse the plan or should we expect some modifications come the Investor Day in March after you've had a chance to really dig into it? Thank you.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [157]
------------------------------
(inaudible) first part of the question with respect to the CapEx on the business aircraft. It's at the high level, it takes into account that fully into the Global 7000/8000. We're also -- we have the Challenger 650, so we are refreshing some of our platform. So it takes into account all of those elements, it's effectively at the high level.
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Alain Bellemare, Bombardier Inc. - President and CEO [158]
------------------------------
On the second piece to add -- good morning, David. I have started to look at the plan -- the 2015 plan very briefly with the team. So I need to spend more time looking at it in greater detail. And that's what I'll do over the next few days. (technical difficulty) the Analyst, the Investor Day, that gives me a few days to get ready for that. So that will be my primary focus.
------------------------------
David Strauss, UBS Securities - Analyst [159]
------------------------------
Alright. Thank you.
------------------------------
Operator [160]
------------------------------
Stephen Trent, Citi.
------------------------------
Stephen Trent, Citigroup Global Markets - Analyst [161]
------------------------------
Hi, good morning, everybody and thank you for the question, and double thanks for the kind words you mentioned for Joe Nadol, he will be terribly missed. Just one question on my side, your competitor has been out there mentioning potential pick up in commercial jets sales in Europe, decent demand in the US and maybe some medium-term demand from Brazil's plans to stimulate regional aviation. And I'm just wondering kind of what your thoughts are with respect to, how you're seeing the commercial market potential at this time, excluding the CSeries let's say sub 100-seat segment.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [162]
------------------------------
I think this is a good opportunity in both the turboprops and the regional jets. And at first, lower fuel price is it helps definitely this category. Why the airlines are doing better. They have better balance sheet to think of funding for the long term and they want outside a lot of their regional root.
And second of course the regional aircraft or even more profitable with lower fuel price. So I think it's a good time to go after opportunities. Primarily, I would say North America, but there is a market where there is development in regional jets. We've seen good progress in Africa, for example, we have seen demand coming from China where they are starting to focus in developing smaller regional airlines. But like I said the primary focus for regional jets (technical difficulty).
------------------------------
Stephen Trent, Citigroup Global Markets - Analyst [163]
------------------------------
Okay. Well, I will leave it at that. Thanks very much.
------------------------------
Operator [164]
------------------------------
Brian Jacoby, Goldman Sachs.
------------------------------
Brian Jacoby, Goldman Sachs - Analyst [165]
------------------------------
Great, thanks for taking my question. Just reading through your financials, it looks like you have to have a vote on when you can actually expand I guess the shares for the Class B shares and it looks like that that comes about towards the end of March. So does that mean that in essence you can't go into the market with an equity deal until that is completed or can you actually go out there and raise it and then it gets solidified once that vote happens.
And maybe if you could just touch on that. And is it likely that you'll do both the debt and the equity at the same time, or could it be potentially you tap the credit markets first and then followed by equity or maybe just a little flavor for that would be helpful. Then I had one quick follow-up question.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [166]
------------------------------
Yes, well effectively you're right. We need to go to the shareholders to get the approval in the queue. Well, we're able to issue new share but nothing (technical difficulty). So effectively we can go. However, there is the contain when (technical difficulty) when we decide to go we can go as soon as early tomorrow because of the shop effected. And then we've got the offer right with our foot in escrow until we get the approval of the shop. And then on the approval of the shareholders there the family is in agreement with this financing plans and the family already have 58%. And it needs two-third of the (technical difficulty) something that we (technical difficulty). It's obviously quite achievable. In terms of the, where we would proceed, we would obviously look at the condition of the market. But the first step in our plan is to raise approximately 600 million (inaudible).
------------------------------
Brian Jacoby, Goldman Sachs - Analyst [167]
------------------------------
Okay. So in essence you can go out market an equity deal, get commitments and then once you have the vote in late March, it would basically hit your bank account, so to speak is that a fair way to look at it?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [168]
------------------------------
It is a fair way to look at it, yes.
------------------------------
Brian Jacoby, Goldman Sachs - Analyst [169]
------------------------------
Okay. And then the second question is just around, you talked about consolidation and it sounds like in the transportation side, you're bring that up. I mean you are the leader there. One would question maybe there could be some regulatory hurdles, if you were to try to combine your business with a number two or three or four player out there. So, when you talk about consolidation, I guess there are those regulatory hurdles. So, are we thinking about it right or you're talking maybe partnerships or all things around the table but an outright consolidation with another player still would probably encounter some major hurdles unless I am reading it wrong, but maybe you could shed a little bit more light on that it will be helpful.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [170]
------------------------------
I just used transportation as an example because of what has happened. China, by diverging PSR and PNR, they informed the company that's above $20 billion in sales. So as we look at opportunities for -- the as you say that these are outside of China for Bombardier will need to consider everything that you put on the table -- regulatory consideration. But I think this market is changing. And how do we position our company to continue to lead this industry, that's what it's all about. For the first, there will be all kinds of consideration before this could take place. And is this the right thing to do? I'm just saying let's look at it, we're open to looking at it, but step by step.
------------------------------
Brian Jacoby, Goldman Sachs - Analyst [171]
------------------------------
Okay, great. And the rating agencies, I think, I'm assuming you're around these plans by the rating agencies. I am just curious on how those stocks have gone and what you're hoping for there?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [172]
------------------------------
Well, we had the preliminary discussion with the rating agencies and obviously as we unfold the plan and we do equity as pretty much, equity for them is very positive.
------------------------------
Brian Jacoby, Goldman Sachs - Analyst [173]
------------------------------
Okay, great. Thanks for taking my questions.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [174]
------------------------------
Thank you, Brian.
------------------------------
Operator [175]
------------------------------
Benoit Poirier, Desjardins Capital Markets.
------------------------------
Benoit Poirier, Desjardins Capital Markets - Analyst [176]
------------------------------
Yes. Thank you very much. Just coming back on the business opportunities. Could you please give an update on where you stand with the LOI with Nantong, Tongzhou Bay Aviation, and whether you could eventually build an assembly line?
And also on the CSeries front, I'm wondering whether an equity participation with China is something that could be part of the business opportunities you are looking at down the road?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [177]
------------------------------
Yes. And your first question like to -- like I think you're referring to the Q400.
------------------------------
Benoit Poirier, Desjardins Capital Markets - Analyst [178]
------------------------------
Exactly.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [179]
------------------------------
Yes. Like we said last year, we evaluated opportunity to do an assembly line in Russia. You're talking about a Chinese potential for the Q400.
------------------------------
Benoit Poirier, Desjardins Capital Markets - Analyst [180]
------------------------------
Yes.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [181]
------------------------------
Like we do every time, we are continuing to evaluate the market and the best way to participate in this market in the most significant way is that requires an assembly line, this is something we would look at.
So I don't want to say we're going to go in one direction or the other. I think the Chinese market will be very large for turboprop and we're just looking how to best participate in this market. That LOI is part of evaluating the underlying event for Q400.
------------------------------
Benoit Poirier, Desjardins Capital Markets - Analyst [182]
------------------------------
Okay. And what about the potential equity interest in the CSeries with China here?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [183]
------------------------------
Well, I don't want to speculate one way or the other. I am just saying that in commercial aircraft, we have a very strong platform for the CSeries and if there is opportunity for us to make it participate in the large market like China or others we would look at.
------------------------------
Benoit Poirier, Desjardins Capital Markets - Analyst [184]
------------------------------
Okay. And quickly on the Global, just looking where you are on the 7000, 8000, what makes you confident to do the CIS in 2016 given your past experience with the Learjet 45, Challenger 300 and also given the complexity of the program?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [185]
------------------------------
Well, first of all, you know we've developed many platforms at Bombardier, and very successful platforms. The Global has first of all very unique features in terms of speed and of course the new engine from GE. But also, it shares a lot of commonality in mature systems from the CSeries and as fly-by-wire. The [Avionic] is from the (inaudible) global. When we look at all of this, I think we understand the challenge of the development schedule and we feel confident to continue with the plan that we've just two years ago.
------------------------------
Benoit Poirier, Desjardins Capital Markets - Analyst [186]
------------------------------
Okay. Just lastly on the CSeries, have you signed up your launch customer here?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [187]
------------------------------
You're referring to the first deliveries of the, the first, we have, you're referring to the first deliveries of the (technical difficulty).
------------------------------
Benoit Poirier, Desjardins Capital Markets - Analyst [188]
------------------------------
Yes.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [189]
------------------------------
We have not announced that.
------------------------------
Benoit Poirier, Desjardins Capital Markets - Analyst [190]
------------------------------
Okay. Thanks for the time.
------------------------------
Operator [191]
------------------------------
Deepak Kaushal, GMP Securities.
------------------------------
Deepak Kaushal, GMP Securities - Analyst [192]
------------------------------
Hi, thanks. I just wanted to ask a question. I don't know if it has been asked earlier, I joined late. Perhaps Pierre, I was wondering if you could shed some light on the aero structures and engineering services part of the business. Is this now structured so that it could actually run as a standalone business and perhaps you could shed some light on, there $1.8 billion in revenues that you're expecting.
How much of that is related to new program development versus sustaining programs and how much of that is related to external revenue and what's the potential for growth in margin expansion here. Thank you.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [193]
------------------------------
So, yes, it's a stand-alone business, of course, we are, we're still working with the service agreements between our internal group. Make sure it really has a stand-alone approach, but in a day-to-day as far as the pricing is concerned between divisions all of these, this is all in slate.
As far as the revenue, 25% is from the outside. And this is what we want to expand, we have unique technology. There's big programs out there of aircraft, either it's (inaudible) existing aircraft where they're looking for reliable suppliers. We have good relationships with the major airplane builders, Airbus (technical difficulty) and we can participate in different programs. So, we are constantly -- right now the advantage of having a standalone business, is there is not only a focus in the internal business, but there's lot of focus right now, let's see how we can leverage the technology that (technical difficulty).
------------------------------
Deepak Kaushal, GMP Securities - Analyst [194]
------------------------------
Okay. And when you look at the competitive environment in that space externally, how does that shake out? Where would you guys find yourself on that hierarchy and does this become a business that you put more capital into or does it become a source of capital that you can put back into your core commercial program for aerospace?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [195]
------------------------------
Well, if you look of our competitiveness, we constantly rank as one of the best supplier in the industry, one who deal with other aircraft (technical difficulty). So we have a high quality people in that group that really understand that what needs be done to deliver high quality part. We've great technology. So I think it positions us well to win some business. But it's -- we have such a broad portfolio from the south to, from cost bids to fuselage, electrical harness. So, I think at Bombardier they will give you more visibility on where is our focus. But it's something that we guess definitely will expand over the next (technical difficulty).
------------------------------
Deepak Kaushal, GMP Securities - Analyst [196]
------------------------------
Okay, thank you very much for that. Appreciate it.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [197]
------------------------------
Thank you.
------------------------------
Operator [198]
------------------------------
Cameron Doerksen, National Bank Financial.
------------------------------
Cameron Doerksen, National Bank Financial - Analyst [199]
------------------------------
Yes, good morning, just want to dig a little deeper into transportation, just wonder if you can maybe explain why we're only seeing a slight improvement in the EBIT margin in BT, I think that in 2014, there was quite a few adjustments on contracts. Is this just really the carry through of that into this year? And I guess the follow-on to that would be how comfortable are you still with being able to reach an 8% EBIT margin in transportation over the long term?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [200]
------------------------------
Well, it's definitely the fact that we still have some contracts that are at lower margin effect the margin of transportation. But at the same time, this year we made the decision to increase the R&D budget and increase the staff at the Chief Technical Officer, technical office, CTO office and we also increased the program management and also we are investing in the IT platforms of transportation. So yes, we chose to affect the margin this year in order to show more consistency over the next few years and to be able to (inaudible) in a consistent way, so that the choice that we made is to affect the short-term of the margins, so that is staying at the similar levels for this year but making the right investment, right now to position our business to get the 8% (technical difficulty).
------------------------------
Cameron Doerksen, National Bank Financial - Analyst [201]
------------------------------
Okay that makes sense. Just housekeeping item here on the foreign exchange Canadian dollar has moved quite a bit here. I know you've got significant hedging contracts out there, but can you maybe quantify what you think the tailwind in aerospace might be on foreign exchange this year?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [202]
------------------------------
I suppose that 2015, we have about 80% is hedged and it's hedged at the rate of $0.94. That's one of the situations, (inaudible) obviously on the spot rate. We benefit more on the stop rate, and the -- that we hedge, but it is very positive and the impact year-over-year over 2014 is effectively positive impact.
------------------------------
Cameron Doerksen, National Bank Financial - Analyst [203]
------------------------------
Okay, thank you.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [204]
------------------------------
Thank you, Cam.
------------------------------
Operator [205]
------------------------------
Ron Epstein, Bank of America Merrill Lynch.
------------------------------
Kristine Liwag, Bank of America Merrill Lynch - Analyst [206]
------------------------------
Hi, good morning. Actually it's Kristine again for Ron. From your earlier comments, you mentioned that the CSeries breakeven point is when the program is at all production rate. So can you provide more color on the key considerations you're looking at when deciding with that ramp reach look like? And basically are you planning to build capacity based on what's already in your order book? Or you're planning to build capacity based on an internally figured number? And how far are you from your initial target of 120 aircraft per year?
------------------------------
Pierre Alary, Bombardier Inc. - Chief Financial Officer [207]
------------------------------
From a capacity perspective, we've always been clear that we've set up the business essentially to be around (technical difficulty) year. The ramp up has to do a lot more with our ability to really manage to ramp up in a really well planned way, the certification of the aircraft and how much if there is a modification that we will need to make. And also a really good sign of entry-into-service to make sure that our initial customers really see great performance for the reliability perspective.
So the first, at the beginning, it's about the CS100 then we're going to introduce another aircraft the CS300. So right now we're looking exactly on the -- how much volume we want to build in the initial years. So I don't want to give you quantities on that, they will also vary depending on our customers' needs.
------------------------------
Kristine Liwag, Bank of America Merrill Lynch - Analyst [208]
------------------------------
Thank you.
------------------------------
Operator [209]
------------------------------
Noah Poponak, Goldman Sachs.
------------------------------
Noah Poponak, Goldman Sachs - Analyst [210]
------------------------------
Hi. In an earlier question, I guess you were asked if the financing plan is a bridge to a better cash flow period. And I think you said no. So I guess I'm sort of wondering if that's true, why issue equity and what was the process behind issuing equity because the leverage metrics even after you add a [$1.05 billion] and refi the $750 million are -- they're not the lowest but they're not the highest either, and so if -- I read the equity raise to mean you must see another year of negative free cash flow in 2016 or 2017 or lower EBITDA so that the denominator of a net debt-to-EBITDA metric was tougher in '16 or '17. Is that not a fair interpretation of raising equity and if it's not then why did you?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [211]
------------------------------
No, it's not. And my comment that is not necessarily of risk, it's more that it's a comprehensive financing plan and the objective is to provide Bombardier with a flexible and strong financing (technical difficulty) profile. And we believe that the -- on the writing to do at this stage is to raise equity together with that in a balanced way, effectively to have a (technical difficulty). At the same time position ourselves to explore other initiatives to get a potential participation in the industry consolidation.
------------------------------
Noah Poponak, Goldman Sachs - Analyst [212]
------------------------------
But what does equity get you that the debt piece what end, if you didn't think your leverage metrics could go even higher beyond 2015?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [213]
------------------------------
Well, I'm looking at the leverage. You're surprising me to a certain extent saying that the leverage is that -- it could be higher where we want to have capital structure that is well balanced. And as well balanced the leverage, there is kind of a maximum level that we would like to get.
And effectively to have proper balance, we believe that the right answer and the right thing to do is to I think freeze the equity level to provide us the flexibility and I think a stronger financial (technical difficulty).
------------------------------
Noah Poponak, Goldman Sachs - Analyst [214]
------------------------------
Okay, okay. Thank you.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [215]
------------------------------
Thank you, Noah.
------------------------------
Operator [216]
------------------------------
David Tyerman, Canaccord Genuity.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [217]
------------------------------
Yes, it's just a question on the aerospace margin, so they are fairly low especially commercial. What does it take to get the margins up and leaving aside the CSeries, what does it take to get the margins up, is it volume or efficiencies or what is that?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [218]
------------------------------
Definitely volume and efficiency, but the main (inaudible) effect mainly the commercial is the ramp up of the CSeries. But I would tend to think this is an overall positive because this is a program that we'll be in for at least 20 years.
You should always understand that the initial years of ramping up a commercial aircraft is dilutive. And you can see that at any number of aircraft manufacturers. Some of it's all sent it to the P&L, they will send it to the balance sheet, but it's the same difference.
It's just that we have a lot of transparency doing the trial.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [219]
------------------------------
And on the business jet side?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [220]
------------------------------
What's your question on the business jet.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [221]
------------------------------
The same thing like your 7% is okay but it's not particularly high, especially compared to some competitors. I am just wondering what does it take to get there, or should we not expect the margins to move much on that side.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [222]
------------------------------
We definitely target to be competitive and we are focused on building this -- the margin of business aircraft. It's a bit, a little bit about pricing, but it's mainly about being more efficient than what we do every day but there is a big (inaudible) our team to bring this margin up.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [223]
------------------------------
Okay, thank you.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [224]
------------------------------
Thank you, David.
------------------------------
Operator [225]
------------------------------
Deepak Kaushal, GMP Securities.
------------------------------
Deepak Kaushal, GMP Securities - Analyst [226]
------------------------------
Hi, thanks for taking my follow-up call I appreciate that. Just a follow-up on David's last comment, is this to imply that in commercial aircraft at the non-CSeries aircraft programs are about breakeven. And then my main question is really on CSeries pricing, here you mentioned earlier, you want to get a good price for the CSeries aircraft. In the past few years Airbus and Boeing have been incredibly competitive on pricing from what we've heard. Are you seeing some respite in that now that their backlogs are somewhat build up or have you re-evaluate your pricing thresholds on CSeries in light of new market conditions. And that's it for me. Thank you.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [227]
------------------------------
When I referred to pricing on CSeries, yes we have, we have competitors with bigger aircraft that like to say have been aggressive in their pricing strategy, but the pricing of the CSeries has a lot more to do with the fact that we have not delivered one aircraft yet. And airlines will take the -- a prudent approach towards the bidding towards the platform that is, this is all new from a manufacturer that has not been in main line. So, when I make those pricing comments it's more related to that. Of course as we progress in the flight test program, we cannot [ask] some of those arguments because we could show the performance of the platform, we can show our plans on entering to the service and we could present a schedule of delivery that is backed up by a [valid hand] flight test program. So, that more has to do with that.
Like to remind you that either Boeing or Airbus, don't really have a competitive platform for the CSeries. When you look at these platforms, you take the 319 compared to the CS300 from a seat cost perspective, it's not even the same category.
------------------------------
Deepak Kaushal, GMP Securities - Analyst [228]
------------------------------
Okay. And then on the commercial aircraft program that are non-CSeries. If the EBIT margin loss next year is primarily related to CSeries, does that imply breakeven for the Q400 line and the CRJ lines. Is that a fair assumption.
------------------------------
Pierre Alary, Bombardier Inc. - Chief Financial Officer [229]
------------------------------
(multiple speakers) that we provide is as far as we would go in terms of, we don't provide guidance by specific program. We're already providing a lot more visibility into the businesses that consume more (technical difficulty).
------------------------------
Deepak Kaushal, GMP Securities - Analyst [230]
------------------------------
Okay, thank you.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [231]
------------------------------
Thank you, Deepak. Operator, do we have any more questions.
------------------------------
Operator [232]
------------------------------
We have no further questions at this time.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [233]
------------------------------
Okay, thank you. So, we will now begin the question period for the media representatives. Operator?
------------------------------
Operator [234]
------------------------------
(Spoken in French). (Operator Instructions) (Spoken in French).
------------------------------
Unidentified Participant, [235]
------------------------------
(Interpreted) First question from (inaudible) you have the microphone. Hello Mr. Beaudoin, here's my question, I would like to know what your plans are as you're now, Chairman of the Board, do you have anything else you intend to do in terms of your professional activities?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [236]
------------------------------
(Interpreted) I have maintained important function within Bombardier and I will team up with Alain to make sure that we are truly carrying out all the plans before us. My energy will be devoted to Bombardier in supporting Alain to deliver our program for the fall.
------------------------------
Unidentified Participant, [237]
------------------------------
(Interpreted) And here's my other question. How did it happen, did you just call Mr. Bellemare, let's have dinner?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [238]
------------------------------
(Interpreted) Yes. When the announcement was made at UTC, we've known each other for years. We have a good relationship. And I think he is a kind of a executive that will be a major plus to Bombardier and we sort of discussed how we could draw him to come over to us.
------------------------------
Unidentified Participant, [239]
------------------------------
(Interpreted) Thank you. One last question. This one to Mr. Bellemare. You said you just arrived recently, you're bit still outside of the company, will it be more difficult for you to divest yourself on certain aspects of the company UTC?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [240]
------------------------------
(Interpreted) Well, divesting this is my answer. It's not really as much of divesting myself from UTC but working together we'll be able to make sure that our program is a 7000, 8000 Global Series and the CSeries will really be very successful worldwide.
------------------------------
Unidentified Participant, [241]
------------------------------
(Interpreted) I thank you.
------------------------------
Operator [242]
------------------------------
(inaudible), The Wall Street Journal.
------------------------------
Unidentified Participant, [243]
------------------------------
Can you hear me?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [244]
------------------------------
Yes.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [245]
------------------------------
Yes, we can.
------------------------------
Unidentified Participant, [246]
------------------------------
Yes, okay. Thank you. I want to ask, I want to again go back to timing here. How long have been negotiations been going on for Mr. Bellemare to join. Was this happening before the January 15 statement on Learjet and guidance for 2014. How many -- when and why was the decision taken, why was the decision taken for Mr. Bellemare to come in, was it to address concerns in the marketplace that management had execution issues regarding execution and to hopefully address those issues and provide a boost to the share price?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [247]
------------------------------
I approached Mr. Bellemare when the left UTC, I know Alain for many, many years, I know he is a very strong executive, understands aerospace very well, understands manufacturing very well. And his reputation points to a great executer.
So I saw an opportunity for Bombardier, so it was my decision to say to Alain how do we sit together and have a discussion to bring even more strength to the Bombardier team and that's what we decided to do. I don't know Alain if you have --
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [248]
------------------------------
It's very consistent with what Pierre just said. When I decided to leave the organization soon after Pierre reach out to me and we decided to sit down together and obviously given my experience in aerospace and the opportunity here at Bombardier, (technical difficulty) strategic fit for me to join Pierre and his team to help the organization continue on a successful journey moving forward.
So, I mean that's as simple as that. So I decided to -- so it was time for me to do something else and Pierre saw the opportunity and we quickly converged on this solution and I am excited about that.
------------------------------
Unidentified Participant, [249]
------------------------------
Okay. Well, I had a follow-up and maybe others will address it, other media members will address. I'm a bit confused about this whole third tenet of the financing plan about you look at other opportunities. And you've talked about one aspect it's perhaps sales but then another we were talking about mergers or even Bombardier making an acquisition -- maybe Bombardier making an acquisition as part of the consolidation process.
I'm not clear, I mean is the third tenet about raising more capital in order to fortify the balance sheet or is there some -- or is Bombardier looking to take out a competitor. I am a bit confused and I really would like as much clarity as possible as to what you mean in the words in that statement about other opportunities.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [250]
------------------------------
I would refer you to our press release. I think we're quite clear there, we're looking at how to complement our financing plan and we feel it's time for us to explore if there is certain business activities at Bombardier that should participate in consolidation of the industry and in the end of the sentence we say in order to reduce debt. So that should be quite clear. It's not that there is a business segment that's for sale, it's more, there is key opportunity today. And we think we should participate if the conditions are right. We are world leader at many sectors and sometimes it's time to see if there is a way to team up to a -- to be an even stronger world leader.
------------------------------
Unidentified Participant, [251]
------------------------------
I think that was -- that's it for me, but if you say you're reducing debt, that wouldn't imply then a -- that would imply that you're raising, that would imply a sale in order to pay off in order to reduce long-term debt, know or am I reading that wrong.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [252]
------------------------------
It would not necessarily imply a sales but I am saying if there is consolidation in the industry we think you could do both and look at consolidation and (technical difficulty).
------------------------------
Unidentified Participant, [253]
------------------------------
Okay. Thanks.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [254]
------------------------------
Okay. Thank you.
------------------------------
Operator [255]
------------------------------
Thank you. (Spoken in French). Next question [Maxim, Radio Canada] (inaudible) in French.
------------------------------
Unidentified Participant, [256]
------------------------------
(Interpreted) Hello, Mr. Beaudoin can you hear me.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [257]
------------------------------
(Interpreted) Yes.
------------------------------
Unidentified Participant, [258]
------------------------------
(Interpreted) Why did you decide that you were handing over the reins to Mr. Bellemare.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [259]
------------------------------
(Interpreted) As I said earlier, he is an executive of experience who knows the aerospace industry very well. And when I sat down with Alain, it was just an opportunity for us to strengthen our management team to make sure that we've got the right team to execute the work that needs to be done. And I'd like to remind you, we work hand in hand with Alain so that he has the necessary tools to deliver all these new products we were talking about and lead on in our growth for the -- looking forward.
------------------------------
Unidentified Participant, [260]
------------------------------
(Interpreted) You talked about your finance plan and possible consolidation, my -- the colleague who spoke before me mentioned that you even said that there is possibility of selling something?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [261]
------------------------------
(Interpreted) No, is the answer. I never said that it was possible there would be a sale. I said it was possible to consolidate within the industry. Look at our company, consolidate would we be better off if we actually benefited from consolidation, if we made use of those possibilities. To better illustrate what I want to say, I use the transportation [event]. When we look at our company, we are focused on certain sectors.
------------------------------
Unidentified Participant, [262]
------------------------------
(Interpreted) Another analyst said, did you think about possibly having the Chinese get involved in the CSeries?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [263]
------------------------------
(Interpreted) I said, we always looked at the best ways to get involved in those big markets and the Chinese market is an important commercial aircraft market. And if we think that would be to benefit the CSeries programs if we were to establish a partnership. Well, this is something we're always open to and ready to look at.
------------------------------
Unidentified Participant, [264]
------------------------------
(Interpreted) Thank you, Mr. Bellemare. Another question, what motivated you to join Bombardier, I know you already mentioned before, but would you reiterate that?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [265]
------------------------------
(interpreted) Hello, yes. First, Bombardier is a very good company and if we look at their product line, they are well known worldwide, [as preferred] product. We sell product throughout the world, they are a world-class company, when it comes to aerospace or transportation for that matter. So for me, the company it sells was reason one to attract me. And secondly, when we look at their aerospace portfolio which is a sizable one, this is something else that's important to me. I have more than eighteen years of experiments with the United Technologies (inaudible).
So, Bombardier is a company with great credibility of sizable economic impact to Montreal, Quebec and Canada. And given all the above, when you combine staying at excellent company. I know they had a bit of a difficult time for certain products, but that happens when you get over it. Aerospace portion, important when we look at rail and the technological aspects of that business segment that was also of interest to me. This company is here in Canada. So I put all that together and when I discussed that with Pierre, it was the right decision for me to come back to Montreal.
------------------------------
Unidentified Participant, [266]
------------------------------
(Interpreted) So in the light of your experience, you talked about the companies difficulties. Now, what is it that you want to change so as to put Bombardier on the right track so to speak.
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [267]
------------------------------
(Interpreted) I think in both case you're not being funny are you, if you're putting it on the right track. But as I said earlier, there are certain things that are quite obvious, this company has excellent product, the brand is well known, the Challenger to which Global -- what Bombardier has done to help the regional jet market long, yes, this company has a lot of capacity and capability that's in the aerospace. Now, rail transportation or transportation per se they're a world leader.
When I look at the challenges, yes, we have some in the short term. Pierre more discussed that. In most cases, it come to program execution. This is something we can work on very quickly and we will address the matter as a team with all the people working in that area. We have short-term challenges, but we have many long-term opportunities.
And I'm convinced as we work with the various teams, we will have the winning strategy to bring our organization in a positive position moving forward.
------------------------------
Operator [268]
------------------------------
(inaudible).
------------------------------
Unidentified Participant, [269]
------------------------------
Thank you. Mr. Beaudoin, in the financials, you said that you expect to see the CSeries certified this year, does that mean that you still expect entry into service this year, or has that slipped to next year actually?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [270]
------------------------------
We haven't changed our guidance (technical difficulty) service, but the first step (technical difficulty) sometimes I use both term but we have (technical difficulty).
------------------------------
Unidentified Participant, [271]
------------------------------
Understood. Thank you. And if can just follow-up, what is your current cost estimate for the CSeries? There's been a few different numbers floating around, I just like to clarify.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [272]
------------------------------
The total cost is 5.4.
------------------------------
Unidentified Participant, [273]
------------------------------
5.4. So that's gone up from 4.9?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [274]
------------------------------
That's based on the [4.3] last year.
------------------------------
Unidentified Participant, [275]
------------------------------
And now it's 5.4. Can you tell me a little bit about what happened there?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [276]
------------------------------
As we said the cost of -- the development of CSeries has gone up. That's also a five month down time, which of course expected the cost of the program. But at this stage I feel that we are doing very well since the advancement of the flight test program. We are passing, we're just about at 1,000 hours, so the progress is being made on the platform.
Yes, (technical difficulty) more money but we have an exceptional aircraft that delivers on our expectation or even in some case exceeds our expectation. So, this is an investment we're making for at least 20 years, so I feel very excited about (technical difficulty).
------------------------------
Unidentified Participant, [277]
------------------------------
Thank you.
------------------------------
Operator [278]
------------------------------
(inaudible).
------------------------------
Unidentified Participant, [279]
------------------------------
Good morning. Just to clarify the (technical difficulty) point 4 billion (technical difficulty) just mentioned is that US dollars?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [280]
------------------------------
Yes, it is.
------------------------------
Unidentified Participant, [281]
------------------------------
Okay. And Mr. Bellemare, did you -- had you already left UTC when Mr. Beaudoin approached you or you -- I'm just trying to figure out the timing here, did he kind of poach you from there?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [282]
------------------------------
Yes. Good morning, absolutely yes. I mean I had made my decision to leave the company and thereafter Pierre reach out to me or it was after I decided to leave.
------------------------------
Unidentified Participant, [283]
------------------------------
Okay.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [284]
------------------------------
It's in fact I called Alain after I (technical difficulty).
------------------------------
Unidentified Participant, [285]
------------------------------
Okay. Just after?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [286]
------------------------------
Well. I would say that that was pretty quick.
------------------------------
Unidentified Participant, [287]
------------------------------
Okay. And Mr. Beaudoin, maybe you can talk about the motivation of Laurent Beaudoin to retire at this time, why right now?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [288]
------------------------------
Well Laurent has been with -- has built this company over the last 50 years, he has built an amazing company with 74,000 employees that sells in 60 countries. His vision and leadership is giving us extraordinary company. And for him after 50 years leading us, it was time for him to move on. He will stay on the Board as Chairman emeritus. But I think you can understand after that many years, he certainly deserves a break.
------------------------------
Unidentified Participant, [289]
------------------------------
Sure. And maybe finally the -- there have been some concerns reading about anyway about how the staff -- how your recent staff changes have impacted potentially your sales process and kind of left customers and clients kind of confused.
I wonder if you can address that a little bit. Do you feel like you have the right sales and marketing people and enough sales and marketing people in place right now, specifically on the aerospace side?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [290]
------------------------------
Well I don't -- you must be referring to only (inaudible) of our business. I guess commercial aircraft where we've had a change in the leadership of sales.
------------------------------
Unidentified Participant, [291]
------------------------------
Yes, mostly that but --?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [292]
------------------------------
Of course we have very, very strong sales team. At commercial aircraft we have a strong sales team. At business aircraft, we have a huge sales team at transportation. Sometimes there is changes in executives and that happens and we look for a replacement but it has not affected our positioning in terms of sales. We have a strong team. We have a strong team under -- at commercial aircraft.
------------------------------
Unidentified Participant, [293]
------------------------------
Okay. And did I hear you maybe just finally saying that the breakeven units volume for the CSeries is 123 year, is that correct.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [294]
------------------------------
No, that's not what we are saying.
------------------------------
Unidentified Participant, [295]
------------------------------
Okay, is there a number that you have given?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [296]
------------------------------
No, there's not. We check there is a ramp up period and it's once we get to a regular production level or the planned production levels that when we start looking at (technical difficulty).
------------------------------
Unidentified Participant, [297]
------------------------------
Okay. Thank you.
------------------------------
Operator [298]
------------------------------
(inaudible).
------------------------------
Unidentified Participant, [299]
------------------------------
Yes, good morning. I just wanted to follow-up and just ask Mr. Beaudoin, was it a difficult decision for you to take, to move to the chairmanship and is it a bittersweet day, I suppose.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [300]
------------------------------
Well, you know for me, it's about doing the right thing for the company. At this time, we had a great opportunity in Alain being available. I know Alain for a long time, and not only that I feel that he has the talent and the experience to contribute to Bombardier's success, but it's also the fact that we know each other very well and that's how we work together through many different opportunities through time. So, it's about teamwork and I felt there was a great opportunity and it's the right thing to do for Bombardier at this time. So, that's how I feel about the decision.
------------------------------
Unidentified Participant, [301]
------------------------------
Okay, great. And if I could just squeeze in a little question around Toronto, specifically around the TTC streetcars. There's been quite a delay in the delivery of it. Are you able to talk a little bit about what the issues were, was it faulty parts, or some problems with the steel, streetcar's frames from Mexico?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [302]
------------------------------
I don't know the specifics about this contract. So, we could refer you to our team at transportation, but I know that as far as the streetcar it's going to be quite an exceptional product (technical difficulty).
------------------------------
Unidentified Participant, [303]
------------------------------
Okay. Around the delivery schedule or anything like that.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [304]
------------------------------
But we said we could get back to you with our transportation team.
------------------------------
Unidentified Participant, [305]
------------------------------
Okay. Excellent, thank you.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [306]
------------------------------
Thank you. (Spoken in French).
------------------------------
Operator [307]
------------------------------
Daniel Bordeleau, Info Aero Quebec.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Analyst [308]
------------------------------
(Interpreted) Good morning. I have a question with respect to the $5.4 billion for the CSeries that you mentioned and this is due in part to the delays in the engine development. Could you recoup some of the additional cost of this engine accident from Pratt and Whitney.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [309]
------------------------------
(Interpreted) We are definitely in conversation with -- in discussion with our suppliers and these discussions will continue over the next two years. This is a major partner on our [Class 4]. The commercial discussions between ourselves and our suppliers are of a confidential nature.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Analyst [310]
------------------------------
(Interpreted) Very well. Another question for Mr. Bellemare who knows the aeronautic industry very well. It's been that (inaudible) the aerospace industry. So after the 300 series, is there any thought to larger planes 150, 160, 180Cs? Will be this be part of your future projects in your new charges.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [311]
------------------------------
(Interpreted) Good morning. First of all, we are working on Series A and 100 and 300 rather. And to complete the certification process for these and then entry into service as rapidly as possible is to see a priority number one.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Analyst [312]
------------------------------
(Interpreted) But in the longer term, do you see any, do you foresee the subsequent steps?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [313]
------------------------------
(Interpreted) It's much too soon to talk about if you do a future speculation. I think we know what we have to do in the short-term, basically engage our people to do the right things and make sure we have two wonderful platforms that will enter into service as soon as possible.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Analyst [314]
------------------------------
(Interpreted) One last question if I may to Mr. Beaudoin. With respect to that Boston subway contract that you lost and you are contesting that decision, you're challenging that decision. Now, the surprising element in this case is the discrepancy between Bombardier or the different deals between Bombardier and the TNR the Chinese (inaudible) got the contract with the $580 million, whereas you paid more than $1 billion for the same thing. Isn't that the sign that there is the serious problem at Bombardier Transportation, the fact that you're losing a contracts with such is huge spread.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [315]
------------------------------
(Interpreted) Well, we are contesting because we want to ensure that everything was done by the rules and the -- it will be up to courts to decide that. We also win a lot of contracts in China against these same competitors. Therefore, we do make sure that we are competitive. Sometimes there are great spreads like this for different reasons, but we ensure that we are competitive throughout the world.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Analyst [316]
------------------------------
(Interpreted) In this specific context, is it your opinion -- I mean do you feel that it's normal that you are almost twice the price in your bid as the winning bidder?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [317]
------------------------------
(Interpreted) I can't comment at the price of our competitor. We felt that our price was competitive and allowed us to deliver the product with the quality the clients got and within schedules and specification and Bombardier is competitive across the planet.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Analyst [318]
------------------------------
(Interpreted) Thank you very much.
------------------------------
Operator [319]
------------------------------
Kristine Owram, National Post.
------------------------------
Kristine Owram, National Post - Analyst [320]
------------------------------
Alain, I know you've already addressed this in French, I just wanted to re-ask you in English. What your first priority is going to be when you come in starting tomorrow, what's the main thing you want to change?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [321]
------------------------------
Well, the first thing that I want to -- good morning. The first thing that I really want to do is like spend time with the team (inaudible) on exactly where we are, obviously as good a view, I mean it's an outside looking in view and I want to make sure that I really understand where we are at, what are at the opportunities, what are the challenges, work closely with the team to reshape or modify or improve the plans that we can deliver on our customer commitment. So I think that will be my first priority and obviously will be focus around like the new programs, the Global 7000, 8000, but the CSeries, the 100s and 300s and then I'll be working with Pierre to see what else needs to be done to ensure long-term success of the Company.
------------------------------
Kristine Owram, National Post - Analyst [322]
------------------------------
Okay. And just to confirm or clarify what you said earlier, is it safe to say that you think then the biggest challenge is to improve program execution?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [323]
------------------------------
I would say there is clearly a challenge on that front. At the same time, huge progress has been made. If you look at where we are now on the CS100, clearly most of the development is done and we are in the certification phase. So moving closer to entry into service. So it's clear that there has been some execution challenges. But I think that we're getting pretty good traction. Pierre mentioned that there's close to 100,000 hours of flight test now going towards closer execution of the CS100. I think that we're getting good traction, but again I want to be along with the team over the next few days, better understand the details and if we have to fine-tune the plans, we will do that. But I feel that things are starting to get traction now.
------------------------------
Kristine Owram, National Post - Analyst [324]
------------------------------
Okay, thank you.
------------------------------
Operator [325]
------------------------------
[Karen Inche], Aviation International News.
------------------------------
Unidentified Participant, [326]
------------------------------
Could you tell me if Flexjet canceled its order at the end of the year, and whether that may have factored into the decision to pause the Learjet 85? And then, if I could, a second question, could you provide a little more color on the progress of the Global 7000 and what key milestones you may expect over the coming months?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [327]
------------------------------
Well, Flexjet did not cancel the order of the Learjet 85 (inaudible). Of course, right now, we're in discussion with them as a customer, Bombardier to have large fleets of our aircraft. We are looking at a way to invest for such tests going forward. For the Global 7000, we've started the assembly of the first flight test vehicle and that's progressing very well.
------------------------------
Unidentified Participant, [328]
------------------------------
Thank you.
------------------------------
Operator [329]
------------------------------
(Spoken in French). (inaudible).
------------------------------
Unidentified Participant, [330]
------------------------------
(Interpreted). Good morning. I'm trying to understand the new financing plan, it's nearly $2 billion that you're trying to raise, it's about half of your market cap. Will part of that money replace existing debt? Or do you rather mean to use it to eventually add debt in the form of security?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [331]
------------------------------
(Interpreted) Looking at our plan, it is an overall plan with many components. The first is equity investments to the tune of approximately $600 million and following that we will raise up to $1.5 billion in new debt capital. Looking at the overall plan, this has meant to ensure that Bombardier has the required flexibility as well as the financial strength to transition itself adequately and one of the components of the plan is a different strategic initiative, notably potential participation in industry consolidation. Looking at the different amounts that have been rolled out, this is part of our overall plan to position ourselves well in the long term taking into account the maturity.
------------------------------
Unidentified Participant, [332]
------------------------------
(Interpreted) The debt that will come due in -- $750 million. Now in this debt, $750 million will be used to reimburse this debt or will it be re-invested?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [333]
------------------------------
(Interpreted) While you have the equity component, the new equity that is, the long-term debt capital and the fact that we are suspending the payment of dividends for now for Class A and B shares, and the potential participation in industry consolidation. So all of these plan elements put together --
------------------------------
Unidentified Participant, [334]
------------------------------
(Interpreted) Well, I understand that. I'll try to simplify the question. In the $2 billion that you intend to raise, will the $750 million be used to reimburse the debt?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [335]
------------------------------
(Interpreted) In our overall plan, the $750 million are taken into account.
------------------------------
Unidentified Participant, [336]
------------------------------
(Interpreted) Can you talk about using some of the assets to reimburse debt? If I take the transportation sector and I evaluate that asset, I bring it into a consortium and I ask our partners to [show] money in exchange for this participation for this stake. Is this a possibility that is being examined?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [337]
------------------------------
(Interpreted) We say that we will be examining any and all potential opportunities deriving from such a review and what you described could be part of a consideration to come forth.
------------------------------
Unidentified Participant, [338]
------------------------------
(Interpreted) Very well. Do you feel that your leverage -- your indebtedness will increase over the next few years? Basically it's liquidity, the cash flow deficit. Do you think that this will maintain the debt as is or raise the level of indebtedness?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [339]
------------------------------
(Interpreted) Well, I think that it may raise the debt up to $1.5 billion. Yes, we are talking about new debt in our overall plan.
------------------------------
Unidentified Participant, [340]
------------------------------
(Interpreted) This element will actually contribute to the debt?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [341]
------------------------------
(Interpreted) No, it is a long-term plan and this is the element that could raise the debt, But otherwise it should actually decrease.
------------------------------
Unidentified Participant, [342]
------------------------------
(Interpreted) Thank you.
------------------------------
Operator [343]
------------------------------
[Marowitz], Canadian Trust.
------------------------------
Unidentified Participant, [344]
------------------------------
Yes, hi. Mr. Beaudoin, you said first of all that you only approached Mr. Bellemare after he announced his departure from UTC. I'm wondering, is this something you and your father -- this change something you and your father had contemplated for a while before that and if Mr. Bellemare hadn't been available or wasn't interested, would you still have been looking to make such a change?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [345]
------------------------------
The decision I made with Alain, I approached Alain after his announcement at UTC. I think there is an opportunity in front of us with his experience and talent in the industry is a well-known across the aerospace industry. I know he can execute very well. So I saw an opportunity and I made a recommendation to our Board.
------------------------------
Unidentified Participant, [346]
------------------------------
So it's not something you had been considering beforehand before his availability?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [347]
------------------------------
It's an opportunity that I took when Alain became available.
------------------------------
Unidentified Participant, [348]
------------------------------
All right. And what's -- this decision then accelerated by some of the concerns that have been raised about your leadership, I guess?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [349]
------------------------------
No, I doesn't have anything to do with this, I think we start together, me and Alain, and I think he can make our Company -- contribute to our Company's success and like I said for me, it's about the success of the Company and I felt we could -- we will form together a very strong team.
------------------------------
Unidentified Participant, [350]
------------------------------
And there has been some reports that you're shopping around or interested in selling the Learjet operations, any truth to that?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [351]
------------------------------
No, no.
------------------------------
Unidentified Participant, [352]
------------------------------
So you have no plans to sell Learjet?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [353]
------------------------------
We don't have plans to sell Learjet.
------------------------------
Unidentified Participant, [354]
------------------------------
And finally, hove you received or is there a number of hours that you've received credit from ground testing on the CSeries?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [355]
------------------------------
It's about earned value, all I can tell you is that we're making as a progress to certify it in the second half of 2015.
------------------------------
Unidentified Participant, [356]
------------------------------
Thank you.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [357]
------------------------------
Thank you.
------------------------------
Operator [358]
------------------------------
(Spoken in French). (Interpreted) (inaudible), Canadian Press.
------------------------------
Unidentified Participant, [359]
------------------------------
(Interpreted) Good morning, Mr. Beaudoin. Good morning, Mr. Bellemare. Mr. Beaudoin, several analysts and investors asked serious questions about some of the decisions made by Bombardier. You said you contacted Mr. Bellemare after he left UTC, but to what -- I mean just how much pressure was there to make a move with Bombardier to reassure investors?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [360]
------------------------------
(Interpreted) The decision has to do with the opportunity basically that arose when he became available. I thought it was a wonderful way to reinforce our team, it has nothing to do with external pressures.
------------------------------
Unidentified Participant, [361]
------------------------------
(Interpreted) So his availability is the only factor that influenced your decision?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [362]
------------------------------
(Interpreted) Yes, I think it's an opportunity for our Company and I think it is the right decision for us.
------------------------------
Unidentified Participant, [363]
------------------------------
(Interpreted) Mr. Bellemare, if I may. To what extent, do you feel that you have to act quickly to redirect things to perhaps re-ensure -- reassure investors?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [364]
------------------------------
(Interpreted) The first thing for me, as I said, is to understand the issues as well as possible, to understand the risk associated with the program and the opportunities that lie before us. And following that, I will implement whatever is needed to improve these programs and improve the financial performance of the business. During my years at UTC, our focus was on creating value for customers and shareholders and it will not be any different here at Bombardier, highly aligned I believe with what Pierre wants to do. We will be working together to ensure the long-term success of the business and profitable growth in the long term.
------------------------------
Unidentified Participant, [365]
------------------------------
(Interpreted) So you begin officially in your new position tomorrow, how long will you allow yourself to basically get to know all the programs and the challenges that lie before you?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [366]
------------------------------
(Interpreted) I could speculate about this, but I don't want to implement generic plans that people coming from the outside often intend to do. What I want to do is quickly work closely with the teams in place to really grasp what's going on. I've had fruitful discussions with Pierre and I'm starting to have a good idea of what is going on. It will be important for me to do the business reviews that are appropriate and we will work as quickly as possible to see to it that the plans that we need are in place to guarantee the entry into service as we wish them to come.
We have wonderful platforms. We are positioned in different sectors with different platforms, but in the rest of the business, there are things that are functioning extremely well. We have wonderful franchises. The business aircraft is a major and efficient franchise. We are privileged in our positioning with [expected trains]. So our starting point is solid and we will deal upon that -- future for the business in a pragmatic way in knowing that we have challenges to be addressed as quickly as possible.
------------------------------
Unidentified Participant, [367]
------------------------------
(Interpreted) Thank you.
------------------------------
Operator [368]
------------------------------
Jerry Siebenmark, The Wichita Eagle.
------------------------------
Jerry Siebenmark, The Wichita Eagle - Analyst [369]
------------------------------
Good morning, and thank you for taking my question. I just wanted -- Mr. Beaudoin, I just wanted to ask if the status of the pause to the Learjet 85 program has changed any since your -- since the Company's announcement last month, especially given your earlier remarks about an improving US economy?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [370]
------------------------------
No, we just made the decision. The market conditions are still not at the volume we had anticipated for this category. I think definitely it will come back, there's a lot of airplanes that need to be replaced in this category. That's why we say we pause, because we have a great airplane and I feel confident that we can come to market with it at the right time.
------------------------------
Jerry Siebenmark, The Wichita Eagle - Analyst [371]
------------------------------
And do you have any sense on the timing of when that might happen in terms of this year, next year?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [372]
------------------------------
We're monitoring market condition and we'll make the decision when it's appropriate to our market.
------------------------------
Jerry Siebenmark, The Wichita Eagle - Analyst [373]
------------------------------
Thank you very much.
------------------------------
Shirley Chenier, Bombardier Inc. - Senior Director, IR [374]
------------------------------
Thank you.
------------------------------
Operator [375]
------------------------------
(Spoken in French). (Interpreted) (inaudible).
------------------------------
Unidentified Participant, [376]
------------------------------
(Interpreted) Thank you. Hello, everyone. Mr. Beaudoin, just want to check, your position is full time or are you starting your retirement? I just want to be sure.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [377]
------------------------------
(Interpreted) Not it's a full-time position. Alain and I, we have many priorities at Bombardier. And I want to be sure I support him fully as he starts out with Bombardier. And over the years, I will still be in charge of mergers and acquisitions and Company financing. And what I want to make sure first is that I support Alain in terms of all the responsibilities that he'll have with the Company. So my position is definitely a full-time one.
------------------------------
Unidentified Participant, [378]
------------------------------
(Interpreted) So if I understand correctly, Mr. Bellemare will sort of steer the ship on the right course again and there is a possibility of either a merger and acquisition or a sale.
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [379]
------------------------------
(Interpreted) What I can tell you, as Mr. Bellemare was saying, we'll see how we sort of bring back the ship to steer on the right course. We do have many platforms, and together we'll make sure that we keep our objectives in mind and move forward.
------------------------------
Unidentified Participant, [380]
------------------------------
(Interpreted) Mr. Bellemare, Bombardier's recent history have shown that if you take one, someone from the outside to replace someone from the inside, a Beaudoin, for instance, or someone like [Mr. Telir], for the employees it meant often that these were -- they might get news that they're going to have a hard time swallowing, maybe people will be laid off, some operations will be shut down. So would you have something to say to reassure the employees?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [381]
------------------------------
(Interpreted) Good morning. I don't want to speculate. Listen, I'm starting tomorrow. It's my first day. And what's important is that we ensure the Company's financial health in the long term. This is a duo in Quebec and Canada, it is an economic driver for Canada. It is a company that exports its products throughout the world. We have a global reach. There are some challenges in some sectors and we understand them. And I will work closely with Pierre to address those challenges and to make sure that in the long term, we have the kind of company structure that will allow us to ensure a solid financial health of the Company.
Mr. Beaudoin, Laurent and Pierre, worked together for years to build this organization that we have here in Quebec. And for me my objective is that we take the right decisions, so that we'll be around another 50 or 100 years. So that's what we'll be focusing on. What do we need to do? To do that, I'll work with Pierre and will work with the existing team. We'll take the right decision, both for our clients, shareholders, employees on the short, medium and long term. As we say in English, we have exceptional employees, Yes, we've built an extraordinary company, but we also have the talent so as to position ourselves to ensure future growth. So we just have to work with our team.
I don't think we have any problems. I mean I've known Pierre now for 20 years. I've been working with Bombardier over the years, Bombardier has been a business partner. So, yes, we've got a very deep talent pool of people that can do good things for Bombardier. Our objective is to work as a team with the people that are there right now to make sure that this Company will succeed in the long term. I mean, we're a world-class company. I know we've got challenges, but often people tend to just point to the area where we have more challenges as compared to focusing on things that go well, but this is a great company, has a lot of potential. I'll work with Pierre and our direct team and all our employees to ensure the Company's success on the market.
------------------------------
Unidentified Participant, [382]
------------------------------
(Interpreted) So are we to fear some layoffs?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [383]
------------------------------
(Interpreted) I don't want to speculate on that point. As I said, I'm starting the job and my main objective is not to make layoffs. My main objective is to make sure that the Company succeeds in the long term, that's our main objective.
------------------------------
Unidentified Participant, [384]
------------------------------
(Interpreted) Very well. Last thing, very last question. Mr. Bellemare, you call it, do you believe that your -- [it occurred], well, how many qualities would you like me to list, well, however many you want to?
------------------------------
Alain Bellemare, Bombardier Inc. - President and CEO [385]
------------------------------
(Interpreted) I have 30 years experience working in a complex high-tech environment, 18 years at United Technologies. It's a company that has been managed with great discipline. They work in a very complex environment, important integrations occurred. So what I bring to Pierre, Bombardier and the team, it's an in-depth knowledge of the aerospace industry to manage huge complex programs, great network with our [planes or AMs], airlines, they're all very solid and very good.
I have integrated experience when it comes to sizable deals with major corporations, integrating Goodrich to UTC. I focused on results and Pierre mentioned that. The client and the financial market, they are important and I have a fashion that companies perform, that people enjoy our product. And what I will bring to Bombardier is what I call a winning spirit to do the right thing, but work as a team. I'd like to be part of a team, that will certainly benefit the Company and that's why I think it's an extraordinary opportunity for me. Thank you.
------------------------------
Operator [386]
------------------------------
(inaudible), Bloomberg News.
------------------------------
Unidentified Participant, [387]
------------------------------
(Spoken in French). (Interpreted) Hello gentlemen, I have some tactical questions. When it comes to the debt per se, have you decided the type? Is it secured or unsecured?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [388]
------------------------------
(Interpreted) No, no, specifically. Our debt is typical, just what we did in the past, sort of a long-term debt. We issue bonds.
------------------------------
Unidentified Participant, [389]
------------------------------
(Interpreted) So more -- 10 years or more?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [390]
------------------------------
(Interpreted) Well, we're going to look at the market and we'll see what the appropriate thing to do.
------------------------------
Unidentified Participant, [391]
------------------------------
(Interpreted) When it comes to your finance -- financing plan, many of my colleagues, the analysts have asked the question about participation in industry consolidation, but I didn't hear you say anything about Aerostructures, looking at the possibilities there because you will have many separate business units, which in the past were strictly Bombardier Aerospace?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [392]
------------------------------
(Interpreted) I said, I didn't want to speculate about any specific sector. I mentioned transportation, but it could be anything else.
------------------------------
Unidentified Participant, [393]
------------------------------
(Interpreted) But Aerostructures were mentioned, one reorganization was announced, talking about the possibility of creating a bigger unit?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [394]
------------------------------
(Interpreted) No, this was not mentioned by Bombardier.
------------------------------
Unidentified Participant, [395]
------------------------------
(Interpreted) Yes, we'll agree on that. Flight test of the CSeries 2,400 hours, has that changed?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [396]
------------------------------
(Interpreted) This is always an approximation, a typical certification program, combination of ground testing and in-flight test. I can't give you an exact figure. It's just to give you sort of ballpark figure.
------------------------------
Unidentified Participant, [397]
------------------------------
(Interpreted) Your share is down today, do you think what you're announcing today is enough or will you have to send out another message saying that you're taking other measures or the March 11 shareholders day would sort of help you along?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [398]
------------------------------
(Interpreted) Well, we don't make any comments on that.
------------------------------
Unidentified Participant, [399]
------------------------------
(Interpreted) And Mr. Bellemare arriving on the market (inaudible)?
------------------------------
Pierre Beaudoin, Bombardier Inc. - President and CEO [400]
------------------------------
(Interpreted) There is a plan that will help us to head in the right direction. This is in terms of our AGM rather in March 11, but we do have short-term challenges. But we have to take the time to do things properly and appropriately.
------------------------------
Unidentified Participant, [401]
------------------------------
(Interpreted) Thank you for having taking the time to answer my questions.
------------------------------
Operator [402]
------------------------------
Paul Vieira, The Wall Street Journal.
------------------------------
Paul Vieira, The Wall Street Journal - Analyst [403]
------------------------------
Hi, sorry, sorry, sorry. I think my question was answered. But I want to be clear that Mr. Beaudoin said that as Executive Chairman, his role would -- he would be a full time, he considers this a full-time role and that he would be in charge of prospective M&A and corporate -- I think it was corporate financing. Can you elaborate specifically on that? And it sounds like -- this sounds, the more I hear this call, it sounds like more of a co-CEO as opposed to a new CEO, am I misreading that or please explain?
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Pierre Beaudoin, Bombardier Inc. - President and CEO [404]
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No, I want to be very clear. Alain got this full mandate of CEO, there is no co-CEO. I simply wanted to express that I want to make sure with my 30 years at Bombardier, I want to make sure to support Alain in whatever challenge that he will face or questions or change about our team and we have approaching issues. I think that he benefits from the fact that I've spent 30 years with the Company, and I intend to continue to support him on a full-time basis with the mandate of focusing more on M&A and financing. But also there is a lot of operational issues or things to do in the Company and I will support Alain in the way he fits in his new responsibility.
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Paul Vieira, The Wall Street Journal - Analyst [405]
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And when you talk about financing, you are talking about raising capital or is that -- or like the plans on reducing debt, is that -- I just want to be clear what corporate financing mean because I do understand what the M&A part means.
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Pierre Beaudoin, Bombardier Inc. - President and CEO [406]
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Well, we spoke about our financing plan. Of course, our Corporate Treasurer does a very good job by putting things in place with our team to raise the appropriate financing. But on behalf of the Board and the Company, I want to follow our strategy closely.
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Paul Vieira, The Wall Street Journal - Analyst [407]
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Okay. I'm going to leave it at that. Thanks.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [408]
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Thank you.
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Operator [409]
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Thank you.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [410]
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Operator, do we have any more questions?
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Operator [411]
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We have no further questions registered.
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Shirley Chenier, Bombardier Inc. - Senior Director, IR [412]
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(Spoken in French). (Interpreted) Thank you very much to all for your presence today. (Spoken in French). Have a great day.
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Operator [413]
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Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation. (Spoken in French).
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